Crypto lawyer James Murphy has described the amicus brief filed by six law scholars in support of Coinbase as “devastating” for the U.S. Securities and Exchange Commission (SEC). This legal document challenges the SEC’s claim that tokens trading on Coinbase are securities. In a post on August 12, Murphy praised the brief for undermining the SEC’s “investment contract” theory.
The amicus brief, filed by a group of law professors and scholars specializing in securities law, provides additional information and perspective to the court. Professors from prestigious institutions such as UCLA, Boston University, Fordham Law School, University of Chicago, and Yale Law School joined forces to challenge the SEC’s position.
Tracing the History of “Investment Contract”
According to Murphy, the amicus brief delivers a compelling argument by examining the historical interpretation of the term “investment contract.” The scholars meticulously analyzed the meaning of investment contracts before, during, and after the passage of the federal Securities Act in 1933. Backed by case laws, the brief establishes that an investment contract refers to a contractual arrangement granting an investor a share of the seller’s later income, profits, or assets.
The scholars further noted that state courts have consistently interpreted investment contracts with these key features. They emphasized that after the Howey decision, there was a common understanding that investment contracts required a contractual interest in the income, profits, or assets of the enterprise. Additionally, the scholars argued that a contractual undertaking to grant a surviving stake in the enterprise has always been the crucial element separating investment contracts from other arrangements.
In Murphy’s opinion, the amicus brief has dealt a deadly blow to the SEC’s argument that tokens trading on secondary markets are securities. He believes it delivers the coup de grace to the SEC’s claim by providing a comprehensive historical analysis and dismantling the SEC’s flawed interpretations. Furthermore, it challenges the SEC’s attempt to regulate through enforcement and encroach on the legislative process of Congress.
The amicus brief was not the only voice criticizing the SEC’s stance. On the same day as the brief’s filing, Senator Lummis also voiced her disagreement with the SEC’s overreach. She argued that the SEC cannot legislate by enforcement, highlighting the importance of respecting Congress’s lawmaking process. The combination of the amicus brief and Senator Lummis’s statements adds significant weight to the growing chorus of dissent against the SEC’s approach.
This amicus brief, supported by renowned law scholars and experts in the field, may mark a turning point in the ongoing debate surrounding tokens as securities. It presents a thorough analysis that challenges the SEC’s position and raises doubts about the agency’s ability to classify tokens as securities. If the court considers the arguments put forth in the brief, it could have far-reaching implications for the regulatory landscape of the cryptocurrency industry. As the case unfolds, the industry will closely watch how the court responds to this devastating blow to the SEC’s argument.